New information released by HM Revenue and Customs following a Freedom of Information request suggests that tax overpayments remain a widespread issue.
In the 2023/24 tax year alone, around 5.6 million people across the UK paid more tax than they were legally required to.
While much attention is usually given to the UK’s tax gap, which measures the difference between tax owed and tax collected, these figures highlight the other side of the problem.
In the same year, taxpayers collectively overpaid an estimated £3.47 billion.
Why tax overpayments happen so often
In many cases, overpayments can be traced back to an incorrect tax code being applied.
When this happens, too much Income Tax or National Insurance is deducted through the Pay As You Earn system before wages or pension income are paid.
Your tax code is issued by HMRC and tells your employer how much tax to deduct. Although HMRC sets the code, it is up to individuals to check their payslips and confirm that the information being used is accurate.
Changes in personal circumstances are a common trigger. For example:
With more people earning income from multiple sources, tax codes are being adjusted more frequently. These updates can easily go unnoticed, particularly where the change appears small.
Employers also play a role. Payroll errors or incorrect reporting can lead to the wrong amount of Tax and National Insurance contributions being deducted, even where an employee’s circumstances have not changed.
Tax professionals have repeatedly highlighted how increasing complexity makes it easier for mistakes to slip through.
Speaking to Accountancy Daily, Emma Rawson, Director of Public Policy at the Association of Taxation Technicians, has said that more deductions are now being coded out than in the past.
She has pointed to changes, such as the Winter Fuel Payment and the High Income Child Benefit Charge, as examples of how additional rules can affect tax codes without individuals fully realising the impact.
How to reduce the risk of overpaying tax
Regularly checking your payslip is one of the simplest ways to spot a potential issue. If your tax code changes and you are unsure why, it is worth investigating sooner rather than later.
HMRC provides online tools through GOV.UK that allow you to review your tax code and claim a refund if you have paid too much.
However, without a clear understanding of how tax codes operate, it can still be easy to miss an error.
Although HMRC offers telephone and digital support, demand remains high and many enquiries go unanswered each year. This can make resolving even straightforward issues frustrating and time consuming.
Getting professional support
Our tax advisers can review your tax code, explain what it means and identify whether you may be due a refund.
Where an overpayment has occurred, we can guide you through the process of recovering it.
We also work closely with employers, helping them review payroll processes and submissions to HMRC to reduce the risk of errors occurring in the future.
If you would like reassurance that you are not paying more tax than necessary, get in touch to arrange an initial discussion.
